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As discussed below in our discussion of "Merger & Acquisition and Proxy Disclosure Litigation Trends," the exposure of corporations to M&A litigation spans a range of subject matters, with sometimes unpredictable results. based on [a] specific misrepresentation." Amgen, 133 S. In its opening brief, Halliburton contends that Basic was wrong when decided as a matter of statutory interpretation and economic theory. Grundfest, Damages and Reliance under Section 10(b) of the Exchange Act (Rock Center for Corporate Governance, Working Paper Series No. Twelve former legislators, government lawyers, and SEC officials filed an amicus brief addressing the respondent’s expected argument, namely, that Congress endorsed fraud-on-the-market when it enacted the Private Securities Litigation Reform Act of 1995 ("PSLRA") without addressing the standard for proving reliance. The former officials’ amicus brief contends that at the time of enacting the PSLRA, Congress was confronted with "competing calls to overturn, modify, or codify the Basic presumption," and that "Congress simply left the fate of that judicially-created presumption to a future Congress or this Court." Br.
Those results may become even less predictable if, as expected, Chancellor Leo Strine is appointed as the new Chief Justice of the Delaware Supreme Court, as Chancellor Strine has shown a willingness to "break new ground" in his rulings in cases before him in the Chancery Court. The trends in new case filings against particular industry sectors reflect the decline in "credit crisis" cases, as new suits against financial institutions have dropped from record-shattering levels in 2009 to third place in 2013 (15% of all new case filings), behind the technology and health sectors (19% and 18%, respectively, of new case filings). The biggest jump in new case filings on a percentage basis compared to 2012 was in the commercial and industrial sector, where new filings grew from 4% in 2012 to 7% in 2013. Without the fraud-on-the-market presumption, plaintiffs would have a difficult time "meet[ing] the traditional reliance requirement because they [could not] establish that they engaged in a relevant transaction . The Section 10(b) cause of action is a "judicial construct," and in defining its contours, the Court has previously looked to other causes of action in the Securities Exchange Act of 1934. In the Amgen decision, Justice Ginsburg made this precise contention, stating that when Congress enacted the PSLRA, it took "steps to curb abusive securities-fraud lawsuits" but "rejected calls to undo the fraud-on-the-market presumption of class-wide reliance endorsed in Basic." Amgen, 133 S.
If, as many court observers predict, the Court in fact overturns the fraud-on-the-market theory, securities class actions as we know them may be consigned to the dust heap. These types of cases hit a nine-year low in 2009, perhaps due to the scores of credit crisis cases–but now have returned to their pre-credit crisis levels (187 cases in 2005, and 178 cases in 2013). In the Fifth Circuit, Halliburton attempted to defeat class certification by showing that individual issues would predominate if plaintiffs failed to prove that the alleged misstatements affected price. an essential predicate of the fraud-on-the-market theory," 133 S. at 1195, there was "no risk whatever that a failure of proof on the common question of materiality will result in individual questions predominating," id. In its principal brief to the Supreme Court, Halliburton distinguishes Amgen by contending that, unlike materiality, market efficiency is not an element of a Rule 10b–5 claim. Several amicus briefs focus on this narrower question, urging the Court to permit defendants to rebut the presumption of reliance with price impact evidence at the class certification stage. In 2013, the number of settlements was flat compared to 2012–96 settlements in 2013 compared to 94 in 2012. In urging the Court to overturn Basic, Halliburton and amici have also highlighted the practical arguments as well. In upholding class certification and refusing to consider Halliburton’s evidence regarding price impact, the Fifth Circuit reasoned that under no circumstance would individual issues predominate because, if no price impact is proved, any individual claims would necessarily fail for no proof of loss causation. In reaching this conclusion, the Fifth Circuit followed Amgen, where the Supreme Court noted that because "materiality is . Moreover, Halliburton argues that, if it were to rebut the fraud-on-the-market presumption by demonstrating no price impact post-certification, reliance would turn into an individualized question of fact and could not be resolved on a class-wide basis. The American Institute of Certified Public Accountants, for example, filed an amicus brief highlighting the practical effect of when price-impact evidence is considered. If, as many speculate, the Court overrules the "fraud on the market" theory, shareholder class action litigation may cease to exist as we know it. 2541 (2011), have emphasized that plaintiffs must affirmatively demonstrate compliance with the commonality element of Rule 23 in order to achieve class certification. Appellant’s and amici’s briefs also argue that the reservations of the dissenters in Basic have, over time, proven well founded. Plaintiffs’ lawyers might then migrate to state court (as was true after passage of the Private Securities Litigation Reform Act in 1995) or begin filing single-plaintiff suits, at least where the dollar losses of large institutional investors or pension funds are sufficiently large to warrant a stand-alone suit. Halliburton argued that Basic flouts this principle by presuming common reliance in the face of strong evidence to the contrary. As Halliburton pointed out, Justices White and O’Connor argued in dissent in Basic that it was unwise to embrace the nascent economic theory of the "efficient-capital-market hypothesis" when that theory was both unproven and not within the Court’s expertise.